Marketing_Management_14th_Edition-min

460 PART 6 DELIVERING VALUE
Role of Private Labels
Why do intermediaries sponsor their own brands? 47 First, these brands can be more profitable.
Intermediaries search for manufacturers with excess capacity that will produce private label goods
at low cost. Other costs, such as research and development, advertising, sales promotion, and physical
distribution, are also much lower, so private labels can generate a higher profit margin.
Retailers also develop exclusive store brands to differentiate themselves from competitors. Many
price-sensitive consumers prefer store brands in certain categories. These preferences give retailers
increased bargaining power with marketers of national brands.
Private label or store brands should be distinguished from generics. Generics are unbranded,
plainly packaged, less expensive versions of common products such as spaghetti, paper towels, and
canned peaches. They offer standard or lower quality at a price that may be as much as 20 percent
to 40 percent lower than nationally advertised brands and 10 percent to 20 percent lower than the
retailer’s private-label brands. The lower price is made possible by lower-cost labeling and packaging
and minimal advertising, and sometimes lower-quality ingredients. Generics can be found in a
wide range of different products, even medicines.
Generic Drugs Generic drugs have become big business. Branded drug sales
actually declined for the first time in 2009. By making knockoffs faster and in larger quantities,
Israel’s Teva has become the world’s biggest generic drugmaker, with revenue of $14 billion.
Pharma giant Novartis is one of the world’s top five makers of branded drugs, with such successes
as Diovan for high blood pressure and Gleevec for cancer, but it has
also become the world’s second-largest maker of generic drugs following
its acquisition of Sandoz, HEXAL, Eon Labs, and others. Other pharmaceutical
companies such as Sanofi-Aventis and GlaxoSmithKline have entered
the generic drug market not in the United States but in emerging markets
in Eastern Europe, Latin America, and Asia, where some consumers cannot
afford expensive brand-name drugs but worry about counterfeit or
low-quality drugs. These consumers are willing to pay at least a small premium
for a drug backed by a trusted company. 48
Generic drugs have become big
business as a means to lower
health care costs.
Private-Label Success Factors
In the confrontation between manufacturers’ and private labels, retailers
have many advantages and increasing market power. 49 Because shelf
space is scarce, many supermarkets charge a slotting fee for accepting a new brand, to cover the cost of
listing and stocking it. Retailers also charge for special display space and in-store advertising space.
They typically give more prominent display to their own brands and make sure they are well stocked.
Retailers are building better quality into their store brands. Supermarket retailers are adding
premium store-brand items like organics or creating new products without direct competition,
such as three-minute microwaveable snack pizzas. They are also emphasizing attractive, innovative
packaging. Some are even advertising aggressively: Safeway ran a $100 million integrated communication
program that featured TV and print ads, touting the store brand’s quality. 50
Loblaw Since 1984, when its President’s Choice line of foods made its debut, the term
private label has brought Loblaw instantly to mind. Toronto-based Loblaw’s Decadent Chocolate
Chip Cookie quickly became a Canadian leader and showed how innovative store brands could
compete effectively with national brands by matching or even exceeding their quality. A finely tuned
brand strategy for its premium President’s Choice line and its no-frills, yellow-labeled No Name line
(which the company relaunched with a vengeance during the recent recession) has helped differentiate its stores
and built Loblaw into a powerhouse in Canada and the United States.The President’s Choice line of products has
become so successful that Loblaw is licensing it to noncompetitive retailers in other countries. In 2010, Loblaw
introduced a new tier of low-priced store brands, priced slightly above the No Name line, to be made available at
its chain of 175 No Frills “hard discount” grocery stores. 51
Loblaw